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How Can You Get Rid of Mortgage Insurance?

Let's Cut Costs Orange County, CA – We’ve talked in the past about using 80-10-10 loans as a good way of avoiding private mortgage insurance. But that doesn’t cover all the situations many people find themselves in. Many homeowners are currently in loans which require mortgage insurance to be paid. FHA is the most common of these. Thankfully, there are some things you can do to eliminate your mortgage insurance payments.

If you have a home loan that did not mandate a 20% down payment in the past 6 years, the overriding likelihood is that you have mortgage insurance. The most obvious way of eliminating the need to pay mortgage insurance is to pay back enough of the loan so that you have more than 20% equity. The hard lesson here is that under certain circumstances you just have to work hard to pay back what you owe.

Know Your Loan Rights

It is vitally important to know your rights, and this will affect when you stop paying mortgage insurance. Your lender is duty bound to let you know how many years and months you will have to pay mortgage insurance on your loan. It is usual that the home buyer will request that mortgage insurance be cancelled once they reach an equity level that allows it. It’s also the case that once the ownership level tips in the balance of 22%, the lender is required to cancel the mortgage insurance payments. Borrowers are also entitled to an annual statement from the mortgage servicer to indicate just how long it will be before they can eliminate their mortgage insurance payments.

However, as of April 1, 2013, new FHA loans will not eliminate mortgage insurance when your loan reaches 78% of the original value.  So, the only option to eliminate mortgage insurance on a loan like that is to refinance into a different home loan that will not require mortgage insurance.

Are You High Risk?

You also have to be aware that if you have fallen into a high risk category as a borrower, then you may have to observe slightly different rules. Under these conditions, it is sometimes required that the borrower pays mortgage insurance until 50% of the home is owned. To avoid this you really have to make sure that you don’t miss and mortgage payments. Mortgage delinquencies will quickly put you in the class as a high risk borrower. Also, your payments will have to be up to date if you want to ask your lender to stop your mortgage insurance payments. Another factor that may limit you from removing your mortgage insurance is your occupancy status. If you have converted your home to a rental you may have to pay down your loan to achieve a higher level of equity before mortgage insurance will be removed.

Tips for Successfully Removing Mortgage Insurance

The rule of thumb here is that if you have 20% equity or higher in the value of your home, then you stand a good chance of ridding yourself of mortgage insurance payments. It all depends on your individual agreement though, and the situation you were in financially when that agreement was struck. Here are a few tips to help you to get to this point:

  1. If you noticed neighborhood home values increasing and you believe you now have 22% equity, then call your loan servicer. Find out their requirements for removing your mortgage insurance.
  2. Have your property appraised. Most lenders will require a new appraisal to prove the value has increase and verify your current equity position. By using an appreciating market you can cut out years of mortgage insurance payments rather than waiting for it to fall off naturally.
  3. Prepay on your loan. One monthly payment divided by 12 and added to your regular monthly payment can take years off your loan repayment.
  4. Remodel your home. The addition of a new room or pool can make a big difference to the value of the home. Beyond giving you a home that you love, it might alos give you a nice boost in equity.

The best advice of all? Get professional help from a mortgage expert who can look at your individual situation. We’re here to help and to help you understand what you can do to save yourself money.

Scott Storace

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